Asked by Marisol Trejo on May 09, 2024
Verified
Other things the same, as the maturity of a bond becomes longer, the bond will pay
A) a lower interest rate because it has less risk.
B) a lower interest rate because it has more risk.
C) a higher interest rate because it has more risk.
D) the same interest rate, because there is no relationship between term and risk.
Maturity
The date on which the principal amount of a loan, bond, or other financial instrument becomes due and is repaid to the investor.
Interest Rate
The cost of borrowing money or the return earned on an investment, usually expressed as a percentage of the principal.
- Explain the determinants of bond interest rates, encompassing the financial status of the issuer and the duration of the bond.
- Apprehend the association between risk and financial gains in investment opportunities.
Verified Answer
NR
nikkola regimbalMay 12, 2024
Final Answer :
C
Explanation :
Longer maturity bonds typically pay a higher interest rate because they are considered to have more risk, including interest rate risk and potentially credit risk, over a longer period.
Learning Objectives
- Explain the determinants of bond interest rates, encompassing the financial status of the issuer and the duration of the bond.
- Apprehend the association between risk and financial gains in investment opportunities.